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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED JUNE 30, 1994 COMMISSION FILE NUMBER 0-8640
SYNCOR INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 85-0229124
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20001 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principal executive offices) (Zip Code)
(818) 886-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
___ ___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. As of June 30, 1994 10,551,536 shares of $.05 par value
common stock were outstanding.
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<PAGE>2
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
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Page
____
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
Balance Sheets as of
June 30, 1994 and December 31, 1993. . . . . . . . . . . . . 2
Statements of Income for three months
ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 3
Statements of Income for six months
ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 4
Statements of Cash Flows for six months
ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements. . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition. . .7
Part II. Other Information. . . . . . . . . . . . . . . . . . . . . . . 9
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
JUNE 30, DECEMBER 31,
1994 1993
___________ _____________
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 12,576 $ 15,110
Short-term investments 1,655 3,590
Accounts receivable, net 51,057 35,052
Inventory 6,473 4,522
Prepaids and other current assets 5,492 5,415
________ ________
Total current assets 77,253 63,689
Property and equipment, net 26,825 25,122
Excess of purchase price over net assets
acquired, net 13,884 14,123
Other assets 10,262 11,652
_______ ________
$128,224 $114,586
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,218 $ 20,817
Accrued alliance development costs 410 4,066
Accrued liabilities 2,950 3,073
Accrued wages and related costs 4,675 5,332
Federal and state taxes payable 1,112 -
Short-term debt 500 -
Current maturities of long-term debt 2,084 3,280
________ ________
Total current liabilities 46,949 36,568
________ ________
Long-term debt, net of current maturities 5,911 6,837
Stockholders' equity:
Common stock, $.05 par value 528 518
Additional paid-in capital 44,637 43,786
Unrealized loss on investments (32) -
Employee stock ownership loan guarantee (2,417) (2,970)
Foreign currency translation adjustment 98 131
Retained earnings 32,550 29,716
________ ________
Net stockholders' equity 75,364 71,181
________ ________
$128,224 $114,586
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See notes to consolidated condensed financial statements.
<PAGE>4
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
THREE MONTHS ENDED JUNE 30,
__________________________________
1994 1993
____ ____
(UNAUDITED)
Net sales $81,888 $59,656
Cost of sales 64,873 39,614
_______ _______
Gross profit 17,015 20,042
Operating, selling and administrative expenses 15,788 15,106
_______ _______
Operating income 1,227 4,936
Other income, net 52 278
________ ________
Income from continuing operations before
income taxes and discontinued operations 1,279 5,214
Provision for income taxes 535 2,092
_______ ________
Income from continuing operations before
discontinued operations 744 3,122
Discontinued operations, net of taxes - 567
_________ ________
Net income $ 744 $ 3,689
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Net income per share:
Income from continuing operations $ .07 $ .29
Discontinued operations, net - .05
______ _____
Net income per share $ .07 $ .34
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Weighted average shares outstanding 10,830 10,729
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See notes to consolidated condensed financial statements.
<PAGE>5
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
SIX MONTHS ENDED JUNE 30,
__________________________
1994 1993
____ ____
(UNAUDITED)
Net sales $156,688 $119,405
Cost of sales 121,252 79,108
_______ _______
Gross profit 35,436 40,297
Operating, selling and administrative expenses 30,891 31,371
_______ _______
Operating income 4,545 8,926
Other income, net 178 563
________ ________
Income from continuing operations before
income taxes and discontinued operations 4,723 9,489
Provision for income taxes 1,889 3,778
_______ ________
Income from continuing operations before
discontinued operations 2,834 5,711
Discontinued operations, net of taxes - 120
_________ ________
Net income $ 2,834 $ 5,831
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Net income per share:
Income from continuing operations $ .26 $ .53
Discontinued operations, net - .01
______ _____
Net income per share $ .26 $ .54
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Weighted average shares outstanding 10,800 10,739
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See notes to consolidated condensed financial statements.
<PAGE>6
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED JUNE 30,
_____________________________
1994 1993
____ ____
(UNAUDITED)
Cash flows from operating activities:
Net income $ 2,834 $5,831
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,205 3,997
Amortization of ESSOP loan guarantee 553 460
Decrease (increase) in:
Accounts receivables, net (16,005) 3,149
Inventory (1,951) 886
Other current assets (77) (1,073)
Other assets 202 (2,177)
Increase (decrease) in:
Accounts payable 14,401 1,687
Accrued alliance development costs (3,656) -
Accrued liabilities (123) (188)
Accrued wages and related costs (657) 2,896
Federal and state taxes payable 1,112 (234)
Deferred income taxes - (101)
Foreign currency translation adjustment (33) (81)
________ ________
Net cash provided by operating activities 1,805 15,052
_______ ______
Cash flows from investing and financing activities:
Purchase of property and equipment, net (5,481) (2,342)
Decrease in short-term investments 1,935 661
Issuance of common stock 861 1,715
Proceeds of short term debt 500 (503)
Repayment of long-term debt (2,122) (955)
Unrealized loss on investments (32) -
______ ______
Net cash used in investing and financing
activities (4,339) (1,424)
_______ ______
Net increase in cash and cash equivalents (2,534) 13,628
Cash and cash equivalents at beginning of period 15,110 4,108
_______ ______
Cash and cash equivalents at end of period $12,576 $17,736
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See notes to consolidated condensed financial statements.
<PAGE>7
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been
included. The results of the six months ended June 30, 1994, are not
necessarily indicative of the results to be expected for the full year.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report and Form
10-K for the transition period ended December 31, 1993.
2. CHANGE IN FISCAL YEAR. The Company announced a change in its fiscal
year-end to December 31 from May 31, beginning with the seven month
transition period ended December 31, 1993. The calendar quarters of
1993 have been restated to reflect comparable periods.
3. DISCONTINUED OPERATIONS. On May 31, 1993, the Company completed the
divestiture of a minor segment of its business, referred to as its Home
Infusion business. The Company's consolidated statements of income
reflected a net gain from discontinued operations of $.1 million for
the six months ended June 30, 1993.
4. ACCRUED ALLIANCE DEVELOPMENT COSTS. On December 3, 1993, the Company
entered into a long-term supplier distribution agreement (the Strategic
Alliance) with its principal supplier of radiopharmaceutical products,
the Radiopharmaceutical Division of the DuPont Merck Pharmaceutical
Company (DuPont Merck). The agreement, which became effective February
1, 1994, replaced an existing supply agreement between the companies
which has been in place since 1988. Under the terms of the new
agreement, DuPont Merck will rely upon Syncor as the primary
distribution channel for its radiopharmaceutical products in the United
States.
In connection with this agreement, the Company established a reserve
for alliance development costs of $4.5 million during the seven months
ended December 31, 1993. Included in these charges were $2.8 million
of costs related to the launch and implementation of the Strategic
Alliance program, $1.1 million of employee-related expenses associated
with the consolidation, relocation and reorganization of certain sales
and service operations and $.6 million for incremental accounting,
legal and regulatory fees.
Cash outlays for the six months ended June 30, 1994 amounted to
approximately $3.7 million. The remaining reserve of $.4 million at
June 30, 1994 is expected to be used during 1994 as the Strategic
Alliance is implemented.
5. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115. In May 1993, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (Statement 115). This Statement supersedes
Statement No. 12, "Accounting for Certain marketable Securities."
Statement 115 addresses the accounting and reporting for certain
investments in debt and equity securities, and expands the use of fair
value accounting for these securities. Statement 115 retains the use
of the cost method for investment in debt securities when there is
intent and ability to hold the securities to maturity. Statement No.
115 is effective for fiscal years beginning after December 15, 1993.
The Company adopted Statement 115 in the first quarter of calendar
1994. However, the adoption of this Statement is determined to be
immaterial and is not reported separately in the consolidated financial
statements.
<PAGE>8
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NET SALES
Consolidated net sales for the second quarter of 1994 rose 37.3% or $22.2
million to $81.9 million versus $59.7 million for the second calendar
quarter of 1993. For the six months ended June 30, 1994, net sales
increased to $156.7 million, a $37.3 million or 31.2% increase. The
Company's net sales growth is primarily the result of activity associated
with the Strategic Alliance entered into with its principal supplier of
radiopharmaceutical products, as discussed in Note 4 of Notes to
Consolidated Condensed Financial Statements. The second quarter of 1994
included a full three months of net sales from the Strategic Alliance.
Net sales growth also continues to be the result of an increase in
procedures performed in the cardiology sector of nuclear medicine
(representing approximately 57% of the Company's net sales), the opening
and acquisition of new pharmacies and increased market share, offset by
aggressive price competition, including a strategic decision made during
the first quarter of this year, to reduce the price of the Company's
largest single product. This price reduction was deemed necessary as part
of a product penetration strategy prior to the expected introduction of a
competing cardiac imaging agent.
GROSS PROFIT
Gross profit for the second quarter of 1994 decreased to $17.0 million, a
reduction from $20.0 million for the comparable 1993 period. Gross profit
as a percentage of net sales also declined during the current quarter to
20.8% versus 33.6% in 1993. For the six months ended June 30, 1994, gross
profit decreased to $35.4 million or 22.6% of sales, down from $40.3
million or 33.7% of sales.
The decline in the gross profit percentage is the result of a variety of
factors. These factors include aggressive price reductions across the
majority of Syncor's product line due to competitive pressures, material
cost increases and initial lower margins as a result of the implementation
of the Strategic Alliance with DuPont Merck, as well as a higher mix of
national account contracts which offer discounted prices in exchange for
volume. The Company has also experienced a decline in the volume and
pricing in some of its core (non-cardiology) products, due to changes in
certain physician practice patterns. Other protocol changes have also
emerged in cardiology which have caused a change in mix within this sector
of the Company's business. Material costs, as a percentage of pharmacy
sales, have been rising due to price increases from suppliers. Current
government focus on health care cost containment and managed care, as well
as aggressive price competition, has made it difficult to cover these
costs through price increases. In response to health care reform
pressures and overall changes in the market, the Company made a strategic
decision in the first quarter to reduce the pricing of its largest single
product in order to increase market penetration, as discussed above.
The Company anticipates most of these trends to continue throughout the
balance of the year. The Company continues to invest in the start-up and
opening of new centralized radiopharmacies. These pharmacies have a
dilutive effect on gross margin until they reach a certain level of net
sales.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Operating, selling and administrative expenses rose 4.5% for the second
quarter or $.7 million to $15.8 million and declined as a percentage of
sales to 19.3% from 25.3% for the same period of 1993. For the six month
period ended June 30, 1994, these expenses declined 1.5% or $.5 million
and also decreased as a percentage of sales to 19.7% from 26.3%.
The 4.5% increase for the second quarter is due primarily to depreciation
and amortization expense associated with the acquisition and start-up of
new radiopharmacies, and a full three months of operating and
administrative costs from implementation of the strategic alliance. The
six month overall decrease reflects the Company's continued success in its
efforts to tightly control operating expenses. The Company was able to
produce a significant increase in net sales without corresponding
increases in operating expenses.
<PAGE>9
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES (CONTINUED)
The Company continues, as a part of its overall business strategy, to
invest in developmental business opportunities. These opportunities
require ongoing resources in the area of operating, selling and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of $
14.2 million at June 30, 1994, compared with $18.7 million at December 31,
1993. Working capital increased $3.2 million to $30.3 million while the
current ratio decreased to 1.65 from 1.74. Days Sales Outstanding
increased to 56 days at June 30, 1994 compared to 52 days at December 31,
1993. This increase results from a slight erosion in the Company's unit
dose business and the Company's expanded customer base associated with
implementing the Strategic Alliance.
The decrease in the Company cash position is the result of continued
expenditures for the alliance implementation, such as financing of
accounts receivable, acquisition of independent radiopharmacies, start-up
of new radiopharmacies, the re-equipping of existing radiopharmacies and
information technology for both internal and customer uses. These programs
are expected to continue through 1994 and will be funded with proceeds
from operations.
The nature of the Company's business is not capital intensive and, as new
products become available, the capital requirement to accommodate these
products will be minimal. The Company believes sufficient internal and
external capital sources exist to fund operations and future expansion
programs. At June 30, 1994, the Company had unused lines of credit of
$14.3 to fund short-term cash needs. Borrowings outstanding on the line
of credit at June 30, 1994 were $.5 million, compared to no borrowings at
December 31, 1993. Finally, the Company reduced its debt position from
$10.1 million at December 31, 1993 to $8 million, a decrease of $2.1
million for the six months ended June 30, 1994.
During the quarter, the Company announced that the Board of Directors
approved the repurchase of up to 500,000 shares of its common stock from
time to time in the open market. At June 30, 1994, 100,000 shares had
been purchased at an average price of $9.08 per share.
<PAGE>10
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ESSOP SHARES
____________
On June 15, 1994, the Company announced that the Board of Directors has
approved the repurchase of up to 500,000 shares of its common stock from
time to time in the open market. Up to 250,000 shares could be
contributed to the Syncor Employees' Savings and Stock Ownership Plan
(ESSOP).
As of this filing, the Company has purchased 250,000 shares in the open
market at an average price of $9.06 per share. These shares of common
stock will be contributed to Syncor's Employees' Savings and Stock
Ownership Plan.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNCOR INTERNATIONAL CORPORATION
(Registrant)
August 9, 1994 By: /s/ Michael A. Piraino
_______________________
Michael A. Piraino
Sr. Vice President and
Chief Financial Officer
(Principal Financial/Accounting
Officer)
